With stocks down, should you fund an IRA or a Roth IRA?

In a year of uncertainty, should you still buy stocks?
Posted at 3:32 PM, Mar 03, 2022
and last updated 2022-03-03 16:56:48-05

With the stock market down and the April 15 deadline to fund our 2021 IRAs rapidly approaching, News 3 asked our financial expert, Carl Carlson, CEO & founder of Carlson Financial, for insights on what we should be doing.

Carlson said the NASDAQ has fallen over 15% since its recent high and many of the small cap growth stocks, including some tech stocks are down as much as 50%. He said this means when they come back to their previous high, they double in value meaning you actually put $14,000 in your Roth IRA instead of $7,000

If you are wondering which to fund, an IRA or a Roth IRA Carlson said this would mean you should be considering purchasing some of these stocks that have fallen a lot in your Roth IRA.

“Depending on your income for 2021 you can fund $6,000 into an IRA and $7,000 if you are over 50. So, if you are over 50 and you put $7,000 into your Roth IRA and you buy these stocks that are down 50%, when they come back up to their previous high, they will have risen 100% which means it is more like you just put $14,000 into your Roth IRA,” he said.

You do not get a tax deduction for the Roth contribution; you only get the tax deduction for the traditional IRA contribution, but with the Roth, your money grows tax-free and after five years ,you are able to take it out tax-free, Carlson said.

If you like the sound of "tax-free" but also might miss not getting a bigger tax refund, Carlson said everyone’s tax situation is individualistic, so it is best to consult a financial professional to determine what is best for you.

But, with many growth stocks down significantly, you get a very nice added benefit to the Roth IRA, he added.